“Anyone willing to lend the U.S. government money at 30 years for (fill in the blank) % is crazy!”

I see variations of these comments, and get these kinds of questions, all the time. Frankly, I don’t blame you for sending them my way. I’ve been following the interest-rate markets closely since the mid-1990s, and I’ve never seen anything like today’s all-time low yields.

I’m sure many of you also remember taking out mortgages at double-digit rates back in the early 1980s. If someone told you back then that three decades later, the same loan would only cost you 3%-and-change, you’d probably tell them they needed to get their heads examined!

Remember paying double-digit mortgage rates in the 1980s?

But rather than think like an American home buyer, or a traditional interest rate analyst, put yourself in the shoes of an investment manager who needs to put tens of billions of dollars in capital to work in bonds. Where are you going to go? What are you going to invest in?

A German 10-year that “yields” negative-0.12%?

A Japanese 10-year that “yields” negative-0.27%?

A Swiss 10-year that “yields” negative-0.65%?

British 10-year yields have plunged to an all-time low of 0.84%, while French yields are barely positive at 0.17%. A few years ago, Italy was on the brink of a massive debt default. But now, its 10s yield a paltry 1.21%.

You might figure junk bonds are attractive at around 5.2% for higher-grade securities, and 15.1% for bottom-of-the-barrel ones. But then you’re taking on a ton of credit risk at a time when defaults are surging and economic growth is dropping. Emerging-market bonds also carry significant credit risk, not to mention potential currency-related headaches.

“Fundamentally sound dividend-paying stocks are a great alternative for people like you and me.”

Highly rated, less economically sensitive, fundamentally sound dividend-paying stocks are a great alternative for people like you and me. In fact, I’ve been recommending several of them in my Safe Money Report. Almost to a name, they’re surging to multi-year or all-time highs, while spinning off market-beating yields.

(Editor’s Note: Click here if you want to get your hands on specific names and “Buy” and “Sell” targets).

But many investment managers are restricted by their mandate. They’re forced to stick to bonds only. So that basically leaves high-grade corporate and sovereign bonds as the best choices among several bad options.

Bottom line: It’s all RELATIVE when it comes to bonds. Yields on U.S. Treasuries may stink. But they stink less compared to the alternatives. So money is pouring into our bond market. All you can do until this yield chase ends is go along for the ride in bonds and count your profits, which is exactly what I’m doing in my services.

As for side effects of the bond surge, look no further than the precious metals market. Silver just exploded to its highest level in almost two years, while gold is having its best start to any year since 1980.

There are several reasons behind the gains. But the simplest and most powerful is that gold is now seen as a “yield play” by many investors. That’s because its 0% “payout” beats the negative yields offered by many benchmark government bonds.

The implication for stocks is mixed. As I mentioned, the “Safe Yielders” I’ve been banging the drum on for many, many months are exploding higher. But no-yield, higher-risk stocks are going nowhere. Financials are particularly vulnerable to ongoing rate declines, particularly at the long end of the yield curve, because that crushes profit margins on core lending and investing activities.

Bottom line: I continue to preach a cautious investing stance, with long positions in high-grade fixed income, gold, and Safe Yielders, as well as an elevated allocation to cash. That has worked well for a year now, and it should continue to do so.

Until next time,

Mike Larson

Other Developments of the Day

Welcome to Jupiter! NASA has received a signal from more than 500 million miles away, confirming that its Juno spacecraft has started orbiting Jupiter, the largest planet in the solar system. The message was: “Welcome to Jupiter!” – setting off cheers and hugs among the NASA team.

The Juno craft was launched five years ago on a mission to study Jupiter’s composition and evolution. It follows the Galileo craft, which made it to Jupiter in 2003. That craft eventually was deliberately crashed into the planet to end its voyage. Jupiter is an enormous ball of gas 11 times wider than Earth and 300 times more massive. Researchers think it was the first planet to form and that it holds clues to how the solar system evolved, CNN reports.

Good luck! The Mega Millions jackpot for tonight has reached nearly $450 million, making it one of the top 10 largest prizes in U.S. lottery history. The last winning Mega Millions ticket was sold in March for a $157 million jackpot. The record is $1.59 billion, from a Powerball jackpot sold in March. The largest Mega Millions prize was $656 million in March 2012.

Need help? More police and other emergency-services departments are studying the use of 911 texting, allowing people in need another method to contact authorities when voice calls are too dangerous to make. U.S. Senator Charles Schumer, a Democrat of New York, has been pushing for text-to-911 in New York City. He said such a system can “save lives by informing 911 dispatchers of critical details that can guide first responders.”

Some cities already allow text-to-911 communication, including for deaf and hard-of-hearing people. Emergency officials stress that a voice 911 call is generally preferred when possible because a dispatcher can elicit details more quickly than texting back and forth. The major concern, officials say, is that overuse of texting when not absolutely necessary could slow response times and cost lives.

Brexit? Interest rates? Stock caution? Should we be spending money to fly to Jupiter? Should you spend money on a lottery ticket? Comment on these and other issues below.

The Money and Markets team

P.S. I’m deeply concerned about the explosion of mass shootings and terrorism we’re seeing in places like Columbine, San Bernardino and Orlando. I absolutely refuse to stand by quietly while these kinds of tragedies continue to happen. That’s why I created FREEDOM FROM FEARwith Sheriff John Bunnell of America’s Wildest Police Videos. And it’s why it’s so critical that you view it the minute it’s released Tuesday, July 12. Click here now to register! — Jeff Cantor

Recommended Articles by Mike Larson:

Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.

{27 comments }

RichardTuesday, July 5, 2016 at 4:54 pm

As an older American who worked and led a conservative life while accumulating savings, I find today’s low interest rates punitive. I can’t earn anything on my cash without taking unacceptable risk or falling prey to a con man. Just saying.

Mike C.Tuesday, July 5, 2016 at 5:13 pm

Same here Richard, and it’s not by accident. Remember the Flu scare back 6 years or so? BHO’s first position was to deny the vaccine to the elderly. These conditions are targeted to achieve a very nasty outcome.

tillamooktimTuesday, July 5, 2016 at 6:00 pm

First us older people paid the high interest rates now we get nothing for our money. Thank god we kept our rentals it’s the only place we can see any yield at all. The interest the bank is paying on our 1/2 million won’t even pay our light bill!

F151Thursday, July 7, 2016 at 10:18 am

The U.S. debt is exploding. Obama has no interest in balancing our budgets and fights any attempt to do that. Therefore…they keep pushing interest rates DOWN to fund the interest on that debt. But…..individuals/countries/companies can live on credit cards forever……the day of reckoning is coming. A lot of the “I ain’t workin’….gimme free stuff” crowd — will be living under bridges.

DTuesday, July 5, 2016 at 8:08 pm

Or a con woman … Janet Yellen … just sayin’ :)

GordonWednesday, July 6, 2016 at 1:30 am

Richard
A lot of us are in the same boat we trusted our governments over the years and saved for our retirement and now we must finance people who don’t know how to handle money but are still enticed by fancy IT gadgets cheap rates and friendly bankers. We get no COLA on our pensions while we know the cost of living is sky rocketing. Stupid governments are trying to goose inflation to 2% well guess what its way beyond that now and climbing. This is the same lying government that will prosecute you for cheating on your taxes and a million other offences but its OK for them to lie an cheat us.

MironMonday, August 8, 2016 at 8:16 am

Good remarks Richard,I wish all the readers had the same thoughts.
How can we get rid of the QE central bankers?

StevenTuesday, July 5, 2016 at 4:55 pm

I know that the interest rates are relatively. Ask any lender/mortgagee and they will tell you that they must behave as their Aunt Fannie Mae tells them to.

BirddogTuesday, July 5, 2016 at 5:11 pm

Do not vote for Hillary she will ruin this country worse than Obama has vote Trump

BirddogTuesday, July 5, 2016 at 5:14 pm

Do not vote for Hillary she is a criminal the FBI is 100% wrong and they are afraid of Barack Obama that is the only reason why they said Hillary will not be indicted

thomas parkerTuesday, July 5, 2016 at 5:17 pm

money usually goes where it is treated well. why not put in your wallet,a safe or safe deposit box. but remember banks have to report withdrawals of more than $10,000.00.

BirddogTuesday, July 5, 2016 at 5:17 pm

Go Donald Trump, make America great again…

NelsTuesday, July 5, 2016 at 6:31 pm

“Anyone willing to lend the U.S. government money at 30 years for (fill in the blank) % is crazy!” Yes. The only advantage individuals have over professional investors is that we don’t have to invest when there are no good investments.

Stocks are generally overpriced. Bonds are generally overpriced. We are supposed to buy low and sell high, so we should be selling off our stock and bond investments, not buying more. Sell to the pros, who don’t have the latitude or the fortitude to stay out of the markets, and wait for good investments to become available again.

Remember that there are investments that are not stocks or bonds, too! There is no counterparty risk if you can take delivery of land or tangibles. After the MF Global debacle and the Sentinel Decision, non-financial assets have a whole new luster.

Ray S.Wednesday, July 6, 2016 at 5:48 am

Here is a question you should be asking yourself: why are those wise institutions buying bonds, for instance, a government bond at (minus) -0.65% for ten years, rather than have the derisory half a percent at the bank? Could it be that they are fearful of a bail-in? This could turn your half a million dollars, at JP Morgan, into JP Morgan special shares, with no yield, no voting rights, non-negotiable and no-one to buy them, like what has happen in Spain.

Geoff LoweTuesday, July 5, 2016 at 6:41 pm

Mike: Do you still think we can assume that 26 week T-Bills are still considered a safe investment. Thanks.

johnTuesday, July 5, 2016 at 6:59 pm

I have repeatedly said that the economic textbook to fit todays world economy is not yet written>
There are lots of sub economic theory but the variables in the overall economic formulae is not yet developed.

I think the best bet is to stick with a few core strategies? Buy gold, Mining, Good businesses who have paid annual dividends , and a mix of core currencies> Dollar, Euro Yen etc.

Sit back and wait ,enjoy the dividends, and watch gold soar >

RandallTuesday, July 5, 2016 at 8:24 pm

In my opinion,as a older Canadian,who purchased our first house in1963, have played in the Stock Markets just about as long, I agree completely with the way Martin Weiss and Mike Larson see markets today.
Until things change who and what can one trust,not the Rating Agencies not Brokers who say your stocks are safe in your named account as deposits are protected…really,same for Banks.
We will see when Bank Bail ins take effect in both our countries. NOT a pretty thought.

Gypsy GeneTuesday, July 5, 2016 at 8:49 pm

With all the world wide debt on the books, we cannot afford to rewrite it at higher rates. There just is not enough cash flow to make the higher payments. It would be devastating to the bouns oriented and the powers that be.

stevenTuesday, July 5, 2016 at 9:24 pm

I meant to say “Relative” but my ‘smart’ phone was ‘relatively’ correcting my english

Ray F.Wednesday, July 6, 2016 at 12:19 am

Can you tell me if “safe money” is available without the auto-signup.

HowardWednesday, July 6, 2016 at 12:35 am

Hi Mike

It appears to be another version of a currency war in low growth world economies. At some point the bond market will revolt, but when?

StuWednesday, July 6, 2016 at 12:48 am

Hey Mike — tonight the 10-year yield hit all-time lows. We’re continuing to see a flattening of the yield curve. Pretty soon we’ll witness a dreaded inverted yield curve that will signal doom and gloom to world stock markets. Yes, the credit bubble is about to burst anytime now. Can another round of QE be just around the corner? And you’re right about continuing to ride the bond rally and buying gold instruments, be it physical, ETFs, quality gold stox. It’s going to be a very bumpy ride…..best of luck to everyone.

GordonWednesday, July 6, 2016 at 1:31 am

Well Larry I am still waiting for that last dip in gold prices so I can back up the truck. Would now be a good time? For the sake of disclosure I already have.

Michael NwaforWednesday, July 6, 2016 at 3:50 am

Brilliant revelation on the bonds. Many thanks Weiss. No mention of African bonds.

terry sheadWednesday, July 6, 2016 at 5:27 am

Mike, the interest rates will never go up, if they do it will blow up there Ponzi scheme?

ragnar1Wednesday, July 6, 2016 at 10:18 am

pray the whole global thing collapses asap
slow bleed will be worse!

PaulSunday, July 10, 2016 at 9:56 am

The government, via the Federal Reserve, has been raping savers going on 8 years now. When are the American people going to say enough is enough and put the people in office who will end this farce?